Selling Property in CA moving equity to another state? Yes or No

76 Replies

We own income properties in Southern CA.  We have a condo that only cash flows about $300 per month.  It has about 500k in equity.  I'm trying to decide if we should sell it and move the money out of state to make a bigger cash flow each month or keep it and watch it appreciate.  It's located in a nice gated community in Newport Beach.  Any input would be greatly appreciated.  

Personally, I'm selling my house in L.A. and am moving to Missouri to invest. I'll be buying a small multi prior to selling my house in L.A. and will use the L.A. house sale to buy a good-sized multi-family. 

If you're not looking to move I recommend researching property management in-depth once you find a market you like as the PM will be vital. 

if it was me I'd definitely would be looking to cash out and invest in higher return area.  One thing to consider though is if a recession does come knocking in the near future and brings prices crashing down, an area like Newport is more resilient in holding onto value.  So even though your equity would have dropped, you can potentially have an even greater gap in value between your current rental and a lower cost + higher return area.  

If uneasy about investing out of state maybe consider Vegas or Phoenix.  Not the best returns nationwide but cheaper than SoCal and its a Saturday morning drive away if the need arises for you to be there physically. 

Wait 3 days and see if they pass that state wide rent control bill. Hey lowered it form 7% to 5% and from 1 year no fault eviction to 6 months. AB1482. 

I live in Vegas so I’m jaded but you couldn’t pay me to be a landlord in California. 

Bill “if San Diego wasn’t in California I’d live there tomorrow” Brandt. 

Originally posted by @Nic Stergion :

Keep the house + appreciation, use a HELOC for $250K and buy OOS

 And use cash to buy and then go for delayed financing to pull most of the money back out if you can find good deals.

delayed financing allows you to pull out of appraisal price which could be higher than purchase price, where as financing only allows up to purchase price even if appraisal is higher.


Originally posted by @Scott Mac :

Hi Shan,

Your tenant profile will definitely change compared to a gated community in Newport Beach.

Different tenant profiles come with different challenges.

Good Luck!


Not entirely true, there's plenty of similar wealthy people renting nice homes outside of CA... 

 

@Shan Vincent congratulations on having a condo with that much equity!  

In my opinion if you don't need the money then it's okay to hold on to the property as long as it continues to have strong appreciation.  Without knowing all of the details of your property there are most likely better real estate investments that will make your money work much harder for you and you'll get a better return than $300 on a monthly basis.

There is always a point in an investment that it is time to cash out and put your money into another investment that makes you more money.  Your condo may have achieved the peak of it's value and it will take another 4-5 years to grow like it has the past 4-5 years so it would be worth it to cash out and invest elsewhere.

If you have questions please feel free to ask.

You could keep it and do a cash-out refi on it and use that equity/money to buy the properties out of state. That way you keep the benefits of the condo/CA deal and still get to buy the cash flow properties. But it depends on all the numbers, of course. But snowballing equity while keeping the properties is a huge golden ticket for investing.

@Shan Vincent

I have a rental condo on the Costa Mesa/Newport border, close to the beach, and the cash flow is about half of what yours is. It was primary residence and I was going to sell it, but opted to rent it out in the end. I feel like the higher rents down here are pretty safe, and in 4-5 years you could be fetching another $250-$500 per month in rent, bringing your cash flow closer to $800 a month. Like others said, just take a HELOC and purchase an OOS property to diversify your rental portfolio a bit, and hang on to your Newport Beach place.

With that much equity/cash you could 10x your cash flow in the Midwest in the right areas. But being an out of state investor is tough..... unless you have the perfect PM and contractors. I happen to have both and I’m very lucky to be able to invest OOS with no worries at all. My two brothers are contractors in Ohio and I can pretty much invest passively OOS. Good luck with whatever you decide!! 

@Shan Vincent

How does that $300/ mo cash flow compare to the average cash flow in the area? Could you make more in an area without an HOA?

I just recently went through this scenario and decided to 1031 exchange a hawaii condo into 3 SFRs in AZ for cashflow $600-$800 each.

Just my 2 cents . Newport Beach long term if you are happy with your return now is a keeper provided not too much maintenance  is in the near future .

@Shan Vincent , Condos come with their own set of challenges and further reduce your control over your operation and return from the property.  So that's one issue.  In addition to that you're return is pretty small compared to the equity.  There's a whole ton of geographies and classes of real estate where you could 10x that return passive or actively.  

The offset of course is that NB is one of those "can't lose over time" areas where stagnations are minimal and appreciation astounding.  So I'd never be one to say that Newport is a bad long term investment.  The state of CA may be able to screw it up beyond all repair.   But you never know.

So  your dilemma is actually the age old cash flow vs appreciation question.  If you have use for cash flow then I'd sell and 1031 outta there cause your return is pretty low.  If you don't need the cash flow I'd think about keeping for appreciation.  But still at the end of the day I'd probably favor the 1031 because it's a condo.  

@Shan Vincent

It really depends on what your RE goals are. Do you want to own more units and leverage the equity for higher cash flow and returns?

Are you comfortable investing in other areas where the prices are more affordable?

After you define your own goals, the decision of what to do with the unit will be easier for your personal needs.

Best of luck!

In the process of doing this. I would say go for it. Now is the time. Market is slowing here pretty big time.... at least in my neck of the woods (SD county). I see these posts on BP about people buying into MF for dirt cheap with good cash flow. I get tempted. But as a CA investor I don’t think it’s for me. I’m looking into appreciation markets that are less expensive to get into at the moment. A/B neighborhoods. Boise area is at the top of my list right now. Can buy in under 300k. Cashflow isn’t quite there.... yet. But that’s also not my game. I’m in for mortgage paydown, equity, appreciation and eventual cashflow (10+ years away). Could see Boise becoming the next Austin, Denver, Portland etc....

we will see.

Good luck whatever you decide.

@Shan Vincent

Hi I'm kinda in a similar situation I have a 3 unit building in Los Angeles current living in one but its cash flowing ok (below mkt rents)and if I keep it I could get an extra 13 to 1500 a month if I move out but I'm already looking out of state to do some smaller homes 1st and if everything goes well I will cash out and buy a big apartment building in a different state Los Angeles is over rated for me and there will come a cap and I can't stand rent control

I think @Michael Swan would have something to say about this conversation! Talking to him personally and hearing his investment strategy I would assume he would say 1031 that thing into several doors in OH and start building that cash flow!

We own properties in Newport, San Diego and Delray Beach Florida.  I self manage all of them and have a great system in place.  I'm not afraid of having out of state properties.  I have been trying to choose cash flow or equity.  We don't "need" the cash flow at this time, but I have been excited about the prospect of building our real estate investment portfolio.

Maybe consider the total returns vs just cash flow. This might give you a clearer picture of your current investments total return value. So that is your YOY appreciation plus cash flow as if you were going to sell, minus taxes and commissions. It is possible this is much greater than $300 a month. 

When you compare that number, that would be the number you have to beat elsewhere. Then chuck in management differences as those might be like night and day. Good luck!

@Shan Vincent in the end it depends on your goals.   I personally have sold a few of my FL properties that had good profits to buy rehab/value add cash flow properties in my rural areas up North.  I didn't have $500k equity in them though.  In that scenario I probably would have just taken out an equity line and used that to acquire more property so I can keep a star location property.

I love having an equity line, have one on my primary and I use it to make cash offers and then pay it off when I refi out when the rehab is done.

In the end though, I keep my leverage reasonable.  I always have 25% or more equity so I do not have to worry about getting stuck.

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